Accenture plc — FY2014 Form 10-K
Business context and reporting period. Accenture provides management consulting, technology and outsourcing services globally. This annual report covers the fiscal year ended August 31, 2014; fiscal Q4 ended on that date. All amounts are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net revenues, before reimbursements | $30.00 billion | $28.56 billion |
| Operating income | $4.30 billion | $4.34 billion |
| Operating margin | 14.3% | 15.2% reported; 14.2% excluding reorganization benefits |
| Net income | $3.18 billion | $3.55 billion |
| Net income attributable to Accenture plc | $2.94 billion | $3.28 billion |
| Diluted EPS | $4.52 | $4.93 reported; $4.21 excluding specified benefits |
| Operating cash flow | $3.49 billion | $3.30 billion |
| Cash and cash equivalents at year-end | $4.92 billion | $5.63 billion |
| Long-term debt, net of current portion | $26 million | $26 million |
- Annual net revenue grew 5% in U.S. dollars and local currency. Outsourcing revenue rose 8% to $14.26 billion; consulting revenue increased 2% in U.S. dollars to $15.74 billion.
- Gross margin declined to 32.3% from 32.9%. Management cited first-half pricing pressure, higher payroll costs not fully offset by resource-mix changes, and lower margins during the early stages of several large contracts.
- Fiscal 2014 cash used in investing was $1.06 billion, including $740 million for acquisitions and investments and $322 million for property and equipment. Cash used in financing was $3.17 billion, including $2.56 billion for share purchases and $1.25 billion in dividends.
- At year-end, the company had $1.73 billion of borrowing facilities with no borrowings under those facilities; total outstanding debt was $27 million. Management said cash and expected operating cash flows should meet working-capital and investment needs for the next 12 months.
Fourth-quarter results and changes
- Q4 net revenues were $7.78 billion, up 10% in U.S. dollars and 8% in local currency year over year. Consulting revenue was $4.02 billion, up 4% in local currency; outsourcing revenue was $3.76 billion, up 13%.
- Q4 operating income was $1.08 billion versus $984 million a year earlier; operating margin was 13.9%, flat year over year. Net income attributable to Accenture plc was $701 million, and diluted EPS was $1.08 versus $1.01.
- Across FY2014, Products had the fastest reported operating-group local-currency growth at 8%; Health & Public Service grew 7%, Communications, Media & Technology and Financial Services each grew 5%, and Resources grew 1%. Resources consulting demand remained weak, with management expecting this to affect near-term year-over-year growth.
- Fiscal 2014 diluted EPS fell from $4.93 to $4.52, largely because FY2013 included a $274 million reorganization benefit and a $243 million U.S. federal tax-audit settlement benefit. Excluding these items, FY2013 diluted EPS was $4.21 and FY2014 EPS increased $0.31.
Outlook, risks and unusual items
- No numeric revenue, earnings or margin guidance is provided in the supplied filing text. Management described continued demand for outsourcing and emerging-technology services, but also a competitive environment, pricing pressure, and client focus on cost savings and controlled spending.
- Management intended to use a significant portion of operating cash generated for share repurchases in FY2015. The Board declared a subsequent semiannual dividend of $1.02 per share, payable November 17, 2014.
- Accenture acquired Procurian for approximately $386 million net of cash acquired and completed other individually immaterial acquisitions for approximately $320 million net of cash acquired. Goodwill increased to $2.40 billion from $1.82 billion; management reported no goodwill impairment.
- Tax matters merit attention: the company reported $1.33 billion of unrecognized tax benefits and said these could decrease by approximately $770 million or increase by approximately $111 million in the next 12 months. IRS audits for fiscal 2010 and 2011 and other tax audits were ongoing; management did not expect their outcome to materially harm results or financial condition.
- Management said existing litigation and investigations were not expected to have a material impact. Client indemnities and guarantees include approximately $768 million of expressly limited potential liability for third-party performance, of which all but approximately $8 million may be recoverable from third parties; potential maximum liability for some unspecified arrangements cannot be reasonably estimated. No significant payments had been required to date.
- Key risks include economic uncertainty, client spending reductions or contract termination, talent retention and utilization, pricing and delivery risk, foreign-exchange movements, cybersecurity and data protection, government-contracting exposure, and concentration of delivery resources in India and the Philippines.
Investor verification checklist
- Confirm the reported margin and EPS trend against FY2013’s unusual reorganization and tax benefits; assess whether FY2014’s lower contract profitability persists.
- Track receivables and unbilled services, which increased year over year, and assess their effect on cash conversion and collections.
- Review the tax-audit and unrecognized-tax-benefit exposures, including possible settlement timing and cash effects.
- Assess whether outsourcing bookings and demand convert to revenue and margins as expected; bookings are estimates, and many contracts are terminable on short notice.
- Monitor the balance among repurchases, dividends, acquisitions and investment needs, as well as foreign-exchange and delivery-location risks.